"As PCs and cell phones are entering slower growth phases, pricing power is leaving the semiconductor companies," said Glenn Fogle, manager of the $1.1 billion American Century Vista
TWCVX
mutual fund.

He said the biggest companies will have trouble growing as fast as in the past.

Nonetheless, stocks of semiconductor leaders like Intel
INTC, -0.68%
Applied Materials
AMAT, +0.27%
and Texas Instruments
TXN, +0.36%
are at or near one-year highs based on an expected rebound in profits and sales during the second half of this year.

"Investors are pricing in a very strong recovery," said Woody Calleri, analyst with Midwest Research. "Things have gotten slowly better, but nowhere near what you would need to support upside from this point."

Infineon

Infineon
IFX, -3.37%
is a prime example. Shares rushed up 30 percent in the previous three weeks and 74 percent this year to around $12.50.

Executives stated on Tuesday morning that business conditions are improving and that its key memory unit eked out a profit. That's the good news.

The bad news: Prices for Infineon's benchmark DRAM chips, used primarily in computers, remain below manufacturing costs. Infineon said it wants to lower its cost basis to parity in the current quarter. Infineon shares edged lower on Tuesday.

Former heroes

The broader semiconductor industry, with its myriad of chips used in automobiles, DVD players, cell phones, computers and elsewhere, fares only a little better as far as pricing power.

Matthew Coffey, senior economist with research group DRI-WEFA, estimated the average price of a semiconductor at around 40 cents, about flat for the past year. However, this is down from an average price of 55 cents only three years ago.

He said technological development allows chipmakers to get higher prices for newer chips, but that the trend remains a negative one for the industry.

The pricing trend is the main cause of reduced long-term semiconductor-industry growth rates. An industry that traditionally grew an average of 17 percent a year is now expected to grow between 8 and 13 percent going forward.

The industry has shifted from cyclical growth to simply cycling. Investors will notice this as lower highs, in terms of revenue and earnings, at the peaks will likely mean lower peak stock prices.

In 1999, when the chip industry was still considered cyclical growth, portfolio manager Glenn Fogle said semis accounted for up to 40 percent of his fund.

He's cut that percentage as he's moved away from the largest chipmakers to companies that can get their products into higher-growth niches, like Omnivision Technologies
OVTI, +0.00%
a maker of imaging device chips, and SanDisk
SNDK
a manufacturer of flash memory cards.

"The end markets are already mature and the big companies have a real challenge ahead to maintain growth," Fogle said. "The market is being way too optimistic about these former heroes."

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